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Why does the American rent divide exist?

Imagine two apartments: both are modest in size, with two bedrooms and similar fixtures and fittings. Yet one costs $1,640 a month to rent, the other $653.

What makes one 2 and ½ times more expensive than the other? Location.

The $1,640 apartment is in Hawaii, America’s most expensive state to rent a property, while the $653 apartment is in Arkansas, the most affordable state.

These aren’t anomalies either. There is a Grand Canyon-sized gap between America’s most costly and economical states for tenants, with the rents in the most expensive five states more than double that of the five least expensive states.

To find out which states are most expensive and why, we looked at National Low Income Housing Coalition (NLIHC) data on rent levels and income across the nation.

 

Which states have the highest rents?

These are the states with the most wallet-busting rents, based on basic two bedroom properties:

  1. Hawaii: $1,640
  2. California: $1,354
  3. Maryland: $1,297
  4. New Jersey: $1,296
  5. New York: $1,293

What is it that pushes these rents so high? One of the simplest reasons is that residents in these states can afford it – or at least some of them can. These states have some of the highest median wages in the country; New Jersey enjoys the fourth highest median wages in the country, New York 16th.

This isn’t the whole story however. Population density and availability of land and housing are another significant factor. The highest rents are consistently in the top 25% most densely populated states.

Housing developments are particularly restricted in Hawaii and California. In the Aloha state there is a natural scarcity of developable land. Residential real estate needs to compete with farm land and commercial real estate for what little there is, and residents in desirable areas often vocally oppose new developments.

California’s restrictive planning laws protect its landscape at the cost of compressing residents into tightly defined urban areas. The scarcity of property, combined with high wages for some, creates five of the top ten least-affordable housing markets countrywide.

Los Angeles, San Francisco, New York City and Washington DC are some of the country’s biggest job hubs. This doesn’t just inflate rents in these states, but in neighboring commuter states like Maryland and New Jersey.

 

Luxury Apartment for Lease, for LessWhich states have the lowest rents?

Rent checks go furthest in these five states:

  1. Arkansas: $653
  2. Kentucky:$660
  3. West Virginia: $665
  4. South Dakota:$680
  5. Alabama:$683

What makes these states so much more affordable? Low median income explain part of it: Arkansas, Kentucky, West Virginia and Alabama.  But this isn’t the whole story.

South Dakota’s median monthly income is a $5,354, yet average rents are much lower than Wisconsin, Maine or Utah, who all show similar income levels.

If you’ve driven through South Dakota’s rolling landscapes or the Badlands you have some idea why rents are so low: it has one of the country’s lowest population densities. Only one city, Sioux Falls, has a population of over 100,000 compared to four cities in Utah.

 

How much do people need to earn to rent?

As anyone who’s ever worked a minimum wage or entry level job knows, housing affordability isn’t just about the cost of rent. It’s also about how much you need to earn to make rent.

The NLIHC measures this using their Housing Wage figures, which calculate how much you would need to make an hour in order to afford the Fair Market Rent (FMR) for a two bedroom apartment. In Hawaii a minimum wage worker earns less than a quarter of the state’s Housing Wage:

Comparison of Housing Wage and Actual Wages and Income by State

State

Housing Wage

Minimum Wage

Median Household Hourly Income*

Hawaii

$31.54

$7.25

$40.34

California

$26.04

$9.00

$36.00

Maryland

$24.94

$7.25

$47.20

New Jersey

$24.92

$8.25

$43.96

New York

$24.87

$8.00

$37.57

Arkansas

$12.56

$6.25

$27.13

Kentucky

$12.69

$7.25

$29.35

West Virginia

$12.80

$7.25

$27.43

South Dakota

$13.09

$7.25

$33.46

Alabama

$13.13

None

$29.03

*Median Household Hourly Income calculated by dividing monthly income by 4 and then by 40, based on people working a standard 40 hour work week.

Looking at this data, it’s clear that minimum wage workers are likely to spend more than 30% of their income on housing, making it unaffordable by NLIHC’s standards.

The states in crisis become clear when median earners are examined. In Hawaii and California even households on the median income have less than $10 left an hour, or $80 a day, for all other expenses after paying an FMR rent on a modest property.

In more prosperous Maryland and New Jersey, median earning households are left with $22.26 and $19.00 an hour respectively after paying a FMR, considerably more than in Arkansas or West Virginia, where households are left with $14.57 and $14.63 an hour. Higher rents don’t necessarily translate to households with less money in their pockets after housing costs.

South Dakota is once again the exception: households here have $26.18 left an hour after paying FMR, thanks to the state’s low unemployment rates and resilient economy.

See these differences at a glance with our Rents by State Map.


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